Variable Mortgage Holders Celebrate!

The US Federal Reserve announced on September 13, 2012 that it will embark on a third round of stimulus (QE3) to improve the employment numbers in the US.  What does this announcement have to do with Canadian mortgage rates?Mr. Carney, the governor of the Bank of Canada, has to keep the benchmark rate which sets prime rate relatively close the US Federal Reserve benchmark rate, otherwise the Canadian dollar would appreciate and have downward pressure on Canadian exports due to the higher cost of Canadian goods.  This would be bad for the Canadian economy and force the Bank of Canada to hold its benchmark rate at or close to its current level to late 2015 along with its US counterpart.

If you are variable mortgage holder who has a prime minus mortgage, this announcement is great news since prime would probably not move dramatically in the next while.  However, the risk is as central bankers "print" money to stimulate the economy, inflation will become an issue sometime in the future.  The message here is to take advantage of your current variable mortgage but plan and prepare for the future.

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